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Portugal GDP Q3 2017

Portugal: Growth picks up in Q3 amid a wider recovery in the Eurozone

November 30, 2017

Detailed figures released by the National Statistics Institute (INE) on 30 November confirmed that growth hit 0.5% quarter-on-quarter in Q3 (Q2: +0.3% quarter-on-quarter), amid a wave of strong growth results emerging out of the Eurozone. On a year-on-year basis, however, growth moderated to 2.5% in Q3, down from 3.0% in Q2. Despite the deceleration in annual terms, the economy remains on a healthy expansion path, buoyed by a booming tourism industry and robust industrial production.

On the domestic side, demand expanded at a faster pace of 0.7% over the previous quarter in Q3 (Q2: +0.5% qoq). The upturn was driven by a 1.4% rebound in private consumption (Q2: -0.5% qoq), which offset a 1.0% decline in total investment (Q2: +5.3 qoq). Quarter-on-quarter growth in fixed investment swung into negative territory, plunging 1.3% in Q3. It contrasted a 1.9% jump in Q2, likely caused by a deterioration in construction activity.

The economy is expected to continue expanding at a solid pace next year thanks to healthy private consumption, aided by the ongoing recovery in the labor market that should boost consumers’ purchasing power. Moreover, strong economic growth in Eurozone trading partners should yield a robust expansion in exports. A high proportion of bad debts, low capital buffers, and weak profitability in the country’s banking sector pose downside risks to economic prospects, however. On 27 November, Portugal’s parliament approved the 2018 budget, which seeks to markedly reduce the deficit to 1.1% of GDP in 2018, and reduce the tax burden on low-to-medium income households and pensioners.

The Bank of Portugal expects the economy to expand 2.2% in 2018. FocusEconomics Consensus Forecast panelists expect GDP to expand 2.0%, which is up 0.1 percentage points from last month’s forecast, and 1.8% in 2019.

Author:Nihad Ahmed, Economist

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